Bankruptcy ruling is blow to CalPERS

(Sacramento Bee) Over objections from CalPERS, a judge last week declared that the city of San Bernardino is eligible for bankruptcy, paving the way for a historic showdown over the sanctity of public employee pensions.

The ruling by U.S. Bankruptcy Judge Meredith Jury means San Bernardino officials will now negotiate a payment plan in the coming weeks with CalPERS and other creditors. Experts say the city is expected to develop a plan that would “impair,” or reduce the amount of money paid to CalPERS. That would translate into lower pension benefits for retirees and current employees – shattering decades of precedent over public pensions in California.

“The feeling is they’re going to have to impair pension obligations because that’s their largest liability,” said Karol Denniston, a San Francisco lawyer and expert on municipal bankruptcies. Any plan ultimately will require the judge’s approval.